(from Wikimedia Commons)
I’ve come to view Paul Krugman as belligerent and repetitive, but he’s still a smart writer who can turn a phrase. Last year Krugman noted that the federal government is essentially “an insurance company with an army.” Defense spending, Social Security, Medicare, and Medicaid represent about 61% of the federal budget. Krugman writes that any attempt to cut government spending must address these programs. This is why Republicans are right push Democrats and demand that entitlement spending should be scrutinized during the budget process. The same goes for defense spending, although Republicans are less inclined to question that part of the budget.
Taking Krugman’s argument one step further, it becomes clear that one of the main jobs of the federal government is to transfer money from the young to the old. Just looking at Social Security and Medicare, those two programs account for 34% of the federal budget, and they benefit people 65 years and older, which is 13.3% of the population.
There are good reasons that the federal government provides all of these services. National defense is a textbook example of a public good, which means it benefits everyone regardless of if they pay for it, and it’s very hard for the market to provide efficiently. Insurers aren’t very keen on providing health insurance to risky seniors. And Social Security was originally created because most labor was manual, and people couldn’t work those jobs as they got older.
There’s also a good reason that programs for seniors are taking up an increasing share of the federal budget: there’s more people, and they’re living longer. In 1900, there were 76 million people in the U.S. and only 4.1% of them were over 65. Now there are 311 million people and 13.3% of them are elderly.
For all the political rhetoric about investing in America and winning the future, that’s not really what the federal government does. Infrastructure is 3% of the federal budget. Education accounts for 2% of federal spending, as does science and medical research. Student loans make up 1% of the federal budget. Meanwhile, the unemployment rate for people 20 to 24 is 13.2%, compared to the overall rate of 7.9%.
It’s a bit unfair to only look at federal spending when examining budget priorities. After all, most state and local budgets are dominated by education, so it’s not as if we’re not spending money on students. But it’s also unfair to set aside Social Security and Medicare as unquestioned and untouchable parts of the budget. These programs have become “third rails” for politicians because of the powerful senior lobby. Political scientist Andrea Campbell writes in her book How Policies Make Citizens that prior to Social Security, seniors did not exist as an interest group. The creation of this expansive program, which many seniors came to rely on for a substantial part of their income, politicized that part of the population. The AARP, formed in 1958, now has over 40 million members.
Many Americans have this fantasy about the government being run like a business. In that case, what is the return on investment for Social Security and Medicare? Are those programs the best use of our tax dollars? Liberals have a kneejerk reaction against cutting government programs, but these are important questions. It’s true that these programs do a lot of good for a group that needs assistance – but this is true of a lot of government spending. And any money spent on one program is money not being spent somewhere else. Some conservatives, like David Brooks, have argued that we should combat rise inequality by investing in more heavily in children.
Participation by young voters has increased in the last few elections, but the senior lobby is powerful and has a fifty year head start. Social Security and Medicare and very popular and aren’t in danger anytime soon. But if children are the future, shouldn’t we focus more effort and tax dollars on them?
Talking about policies in vague terms just confuses everyone. If you want to propose cutting Medicare and Social Security, please say how you want to cut it and what you would use the money for.
Once you actually look at these programs, you realize that there are some savings to be made in Medicare that don't damage benefits, and it turns out that those are exactly the cost efficiencies Obama has proposed. You'll also realize that because free-market Medicare is more efficient than the cartel world of private insurance, any cuts in Medicare benefits cause much more harm to seniors than they save the government money. In fact, it's pretty obvious that switching to a fully free-market single payer system would save everyone an awful lot of money. You'll also realize that Social Security benefits have relatively high multipliers and need to be increased, not decreased.
Samuel,
I will admit that my piece is intentionally vague, and doesn't contain any actionable policy ideas. However, my point is that we should take the time to think about our budget priorities beyond the mathematics of what gets cut and what gets added. Just because a program has a history and a strong lobby behind it doesn't mean it is the best use of our tax dollars. And as opportunity cost tells us, any money spent on one program comes with the cost of others things we could have done with that money. While politics and mathematics rule the day, it's still worth taking the larger view occasionally so we don't get lost in the political wrangling.
All excellent points and questions. Tangential to your analysis is a strategic imperative in national politics, one that’s been written about a lot. Ramesh Ponnuru from National Review makes this point, that one idiom where the conservative small-government anti-spending rhetoric might hook into the Millennial demographic is to incite age warfare, pitting the young against the old.
The counter-argument goes, ‘Why alienate this powerful interest group?’ as you point out with the increasing numbers of the AARP. But they were already flirting that risk by touting entitlement reform as one of their main platforms.
But there’s a counter-argument on the strategic imperative that could come from the left, which is: maybe age warfare wouldn’t actually stick. Maybe students and young people, at the end of the day, actually are fine with direct or indirect redistribution on an age-related register. After all, polls show a) we are more liberal, b) “socialism” polls better than “capitalism” among Millennials, c) when we do sanction government action, it is almost invariably on social protection and not military, for example.
There’s another argument for the eminent appeal of entitlements, especially Social Security. Most conservatives I know don’t really have a problem with Social Security, even some libertarians. That’s because, redistributionist as the program is, from the most straightforward methodical approach it is ostensibly “fair” distribution. Michael Greve is theorist at the American Enterprise Institute who examines the Constitution from Public Choice Theory perspectives. His analysis doesn’t feel so different from Rawls (indicating possibly a rare overlap between those ideological perspectives), because Social Security is a moral choice we might make ex ante before we enter an “agreement”—whether that agreement is a veil of ignorance or a social contract like a Constitution (if that sort of thing is your scene). From that perspective, you are young, wealthy and healthy today. You may or may not one day get sick because of unforeseen forces (Medicare). You may or may not one day be poor because of unforeseen forces (Medicaid). But *everybody* is going to get old.
It’s not hard to see why this stays within acceptable parameters for most mainstream libertarians. Hayek advocated for a mandatory minimum income for all citizens, and Social Security looks downright conservative next to that idea. Just things to think about.